Climate matters continue to be top of mind among legislators on Capitol Hill. Last week's Inflation Reduction Act aims to support domestic clean energy providers. Another aspect of the environmental push is working to ensure events like the California wildfires of yesteryear happen less frequently. PG&E was and is at the heart of litigation claims following that devastation. The stock has been crushed over the last five years, but there could be value here.
According to Bank of America Global Research, PG&E Corporation (NYSE:PCG) is the owner of the Pacific Gas & Electric Company, a regulated utility servicing 13 million people in a 70,000 square mile service area in Northern and Central California. The utility has businesses in electric and natural gas distribution, electricity generation, procurement, and transmission, as well as natural gas procurement, transportation, and storage. Pacific Gas & Electric manages 5.2 million customer accounts and 4.3 million gas customer accounts.
The $27 billion market cap San Francisco-based utilities sector stock does not pay a dividend and features a remarkably high short interest ratio of 15.9%, according to The Wall Street Journal. Earlier this year, the company reached a $55 million settlement over its California wildfire saga.
Just recently, PCG missed analyst estimates for its Q2 earnings last week.
While profits were below forecasts, the long-term valuation looking out through next year appears favorable once earnings normalize. BofA analysts see EPS rising at a strong rate from $1.00 in 2021 to $1.34 by the end of next year. There's hope that PG&E could reinstate its dividend, too. Moreover, the company could turn free cash flow positive over the coming quarters.
With the Q2 earnings report in the rearview mirror, the corporate event calendar is light until PCG's Q3 earnings date unconfirmed on Oct. 31 BMO according to Wall Street Horizon.
The last two-plus years have been one big chopfest for PG&E shares. There was heavy selling and a massive drawdown from 2017 through 2018 as the company dealt with severe liability around the California wildfire situation. Since mid-2020 though, the chart is simply trendless. There's support in the $8 to $9 range and resistance in the $12 to $14 area. The bulls will point to five straight positive weeks, but that's just near-term noise to me.
I like the earnings recovery story that might play out, but that needs to be confirmed by price action. I'd be a buyer of the stock on a breakout above about $13 - that would trigger a measured move price objective to near $18.50.
Fundamentals appear to be improving for PG&E as its management team works to de-risk its portfolio of generation assets and load requirements. The stock has gone through a tough re-rating, but it might be basing now. Still, bulls should wait for a technical breakout before jumping aboard.
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